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Sunday, January 26, 2014

Stock Forecasting with Machine Learning

Almost everyone would love to predict the Stock Market for obvious reasons. People have tried everything from Fundamental Analysis, Technical Analysis, and Sentiment Analysis to Moon Phases, Solar Storms and Astrology.

However, unless you are in a position to front run other people's trades, like High Frequency Trading, there is no such thing as a guaranteed profit in the markets. The problem with human stock analysis is that there is so much data and so many variables that it is easy for the average human to become overwhelmed, get sucked down the rabbit hole and continue to make sub-optimal choices.

Sounds like a job for Machine Learning and there is no shortage of people and companies trying this as well. One major pitfall is that most ML algorithms do not work well with stock market type data. This also results in a lot of people of wasting a lot of time. But In order to share some of the concepts and get the conversation started I am posting some of my findings regarding Financial and Stock Forecasting using Machine Learning

I trained 8000 machine learning algorithms to develop a probabilistic future map of the stock market in the short term (5-30 days) and have compiled a list of the stocks most likely to bounce in this time frame. There is no single future prediction. Instead there is a large set of future probabilities which someone can use to evaluate their game plan and portfolio. My exact methods remain proprietary at this time (but might consider institutional licensing).

Here are the "Stock Picks" based on how they closed on Friday (Jan 24, 2014) based on the stock's individual trading behavior:

Disclaimer: This is not trading or investing advice. It is simply the output of my ML system. If you lose money, do not come crying. Trade at your own risk!

Since, the market got pummelled this week, there are a lot of stocks that look like 'buys' right now. But the overall (US) market is coming off a very prolonged euphoric period and it has not had a significant correction for over two years. So, it is possible that the current downswing is either a minor pullback a.k.a. "dip", or it is the start of a major correction.

Here are the charts. For the most part they look like a big sell-off in an larger uptrend. It is always interesting to see how the future unfolds and especially with respect to these predictions. Also, keep in mind, even if a stock does bounce, it could then run out of steam and drop again. Ah...life in the uncertainty zone ;).